Smoke And Mirrors I'm Afraid, Dear

Front and center this morning, I have an email telling me that David Bowie had died at 69 after battling cancer. This is sad for me on two fronts. That a rock music legend has died, and that he lost a battle with cancer. I don’t like hearing stuff like that, I prefer to hear stories of conquering battles with cancer! David Bowie’s career was interesting in that he changed courses with music direction several times, and each time he was successful. A strange cat for sure, but I always liked him, so instead of hitting “shuffle” on the iPod this morning, I started the day with a song from David Bowie titled: Waiting For the Man.

Well, did you see the size of the Jobs Jamboree on Friday? I laughed when I saw it, for I knew it was massaged, and cooked up by the BLS. 292,000 jobs created in December. Really? What’s this world coming to that we go to such extremes to push an agenda? The extremes I’m talking about is to so brazenly put 292,000 jobs created out for display, and the agenda, is the Fed’s “we’re OK” agenda.

I received emails from the former Asst. Treasury Secretary, Paul Craig Roberts, and the former Budget director David Stockman, with both telling me what I already knew, that the Jobs report was nothing but smoke and mirrors. If you’re interested in what they said about the report, you should Google either one of them, and check it out.

The strong jobs data was not the medicine to cure what ails the U.S. stock market on Friday, and stocks here in the U.S. ended the week on a down note, thus marking the worst first week of a year for stocks. And Chinese stocks were down again overnight, thus putting U.S. stock futures on shaky ground early this morning ahead of the open. I happened to be doing some writing and research last night, and I had the currency screens on, and the currencies were looking pretty perky vs. the dollar at that time.

So far this morning, the results for the currencies are mixed, with the Aussie dollar (A$), Canadian dollar/loonie, Pound Sterling, Mexican peso, Czech koruna, Sing dollar, and New Zealand dollar/kiwi, all on the rally tracks vs. the dollar this morning. Gold is flat right now, as is the Japanese yen, and a couple of small currencies. And among those currencies not participating in the rally vs. the dollar, the S. African rand is the worst performer overnight.

The rand was down as much as 9% vs. the dollar in the overnight trading, before paring its losses and sit with “only” a 2.1% loss at the moment. That plunge overnight was much like a “flash crash” in the currency. I was writing an update to the Currency Insights that we have on our web site for the S. African rand yesterday (don’t rush to read it, as it will take a couple of weeks before it shows up on the website), and quite frankly I couldn’t find one nice thing to say about the rand, the S. African economy, Government, Central Bank, etc. At one point I stopped typing, and had to walk away for a couple of minutes because It was getting personal! HA!

The Russian ruble is nipping at the rands ankles to be the worst performer overnight. This daily rout of the ruble is beginning to give me a rash folks. But could there be a turnaround in store for the ruble? Well, according to the guy they call the “most accurate ruble forecaster, Dmitri Petrov, of Nomura, says that, “we think we are approaching the bottom in the dollar/ruble and our bias is to look for opportunities to buy the ruble in the coming weeks.”

I know that I’ve always told you to buy into weakness, but you have to have a reasonable idea that the weakness isn’t going to last much longer. So, that’s what it appears this guy, Petrov, is going to do. But not me. I would have to see either a discontinuation of the economic sanctions on Russia, or a strong rally to begin in the price of oil, for me to buy into this weakness. But, to each his own, eh?

Last Friday, I really went to town with the reasons why I thought Japanese yen traders were being misled into thinking that yen was a safe haven currency. And this weekend I read where yen futures traders have turned bullish on yen for the first time during Abenomics. For those of you new to class, Abenomics is what they call the 3-Arrows Economic plan that Prime Minister Shinzo Abe introduced a few years ago, that have not yielded one sliver of hope for the Japanese economy, but yet, yen traders continue to think they should buy yen right now. I doubt this all works well for them, but they are Big Boys, they’ll be OK.

The Best performing currency overnight is… drum roll please… believe it or don’t, but it’s none other than the Singapore dollar! That’s right the Sing dollar for probably the first time in my writing career has posted the best overnight performance, barely beating out the Aussie dollar (A$).

For the Sing dollar, this is not a fundamental change or anything like that, it’s simply a matter of the currency getting too close to the bottom of the trading band that’s instituted by the Monetary Authority of Singapore (MAS). The MAS sets the trading band at several points during a year, and then just adjusts the band when needed. Rather than have the currency trade through the band limits, it bounces instead.

The Aussie dollar (A$) has slipped below 70-cents again on Friday, trading with a 69-cent handle. But a strong 1/2-cent rally has the A$ back above 70-cents this morning. In my weekend research work, I came across a report by a currency firm that believes the A$ is going to fall to 60-cents this year. YIKES! That was a depressing read for sure! This currency firm seems to believe that the U.S. dollar strong trend will continue throughout the year in 2016, and I have to argue with that.

If things play out in the U.S. this year the way I believe they will, the strong dollar trend will be long forgotten by fall. But that’s just me, being me, folks. Take it or leave, tell me what you wanna do. Take it or leave it, now the choice if up to you. Can’t wait until tomorrow, tomorrow maybe too late. Ahhh, the lyrics to a Foghat song to brighten our day! HA!

So, the yen and the euro and the franc, all are weaker vs. the dollar this morning, from what appears to be a removal of the flight to safe havens trading that existed most of last week. What? Really? These guys and gals think that all that geopolitical saber rattling, markets turmoil, and just downright ugliness in the world went away? I’ve always told you that traders are fickle. They are also strange – this just goes to prove that!

Gold is flat this morning. Friday’s price action in gold saw it flop around always down, and end up down $4 from Thursday’s close. Volume was heavy in the gold futures contract, with 169,000 contracts traded on Friday. I just love Ed Steer’s letter when he prints the days of World Production to cover short positions graph like he did on Saturday. For those of you keeping score at home, the total days of World Production to cover the short positions in gold are 50.

But get this – the total days for silver are 170! WOW! Platinum would need 100 days of production and Palladium would need 70. But that 170 days of world production would be needed to cover the shorts in silver is amazing, and makes you shake your head and go, hmmm. How does a market get so out of whack, who allows this in the first place, and then who allows this to go on? These and many more questions, inquiring minds need to know the answers to!

The U.S. Data Cupboard is basically empty today after Friday’s Jobs Jamboree. We also saw the Consumer Credit (read: debt) for November on Friday, and this data really shocked me. Not an electrical shock, that would hurt! But a oh my goodness (OMG) shock that comes when a number looks so out of whack with what was expected.

You might recall me telling you on Friday that we would probably see November Consumer debt hit $18 billion. Well the data printed a $13.95 billion number instead. This is not good for the economy folks. The U.S. depends so much on “consumption” to fuel the economy, and when consumers are piling up their debt to buy stuff, which they shouldn’t do, but the government wants them to do, the economy suffers.

And then there was also this report that they tried to slip through the back door on Inventories. I’ve explained this in the past that Inventories, play a big part in the GDP calculation, and apparently, inventories are being drawn down and not restocked, and because of this, and the drop in consumer debt, my U.S. GPD tracker has dropped from 1.1% to 0.8%! And don’t forget the hedonic adjustment made by the government last year that added Research & Development to the GDP calculation which would add up to 3% in GDP annually. Because without this hedonic adjustment, 4th QTR GDP would be negative, and on the path to recessionville.

I’ve got some more bad news to deliver on the U.S. economy. Sure, Friday’s Jobs Jamboree was a hootin’ -n- hollerin’ good time for all of those that thought the world was ending before. I mean 292,000 jobs created in December, who could find problems with that? Ahem. They call him Mr. Lucky. He can find problems anywhere with any government printed data!

Years ago, I used to tell readers that the problem with the Jobs Jamboree jobs count, is that it didn’t tell us what kind of jobs were added, high paying, low paying or whatever, so what good would a good # of jobs created be, if they were all low paying jobs? What good would that do the economy? These low paying jobs would be good for the unemployed person for a while, but soon, they would find out that they could probably net more by not working. But as the years have gone by, those details can be found, you just have to know where to go to find them.

And because I’m Mr. Lucky, someone sent them to me! YAHOO! According to Dent Research, 48%, nearly half of the jobs created fell in the lowest wage range. Administration, support services, and restaurants were the big winners. Only 21% of the jobs created which would be equal to approx. 61, 300 were above the median wage range. That leaves only 31% considered to be high paying jobs.

That means that 138,000 jobs were added above the median range, and 137,000 jobs were added below the median range, with most being in the lowest range. And the markets decided that this was good news? I’m sure the Fed members were all doing the Whip and the Ne Ne (for all of you like me that had no idea what that was before they started filming football coaches doing it after winning games, those are dances).

Go where you wanna go, do what you wanna do, with whomever you wanna do it with. But you won’t find me waving flags, or pinning my colors to the strong economy mast, I still say we have a one-way ticket to recessionville. All aboard!

That’s it for today. Now, let’s go out and make this a marvelous Monday!

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About Chuck Butler:

Chuck Butler is the Managing Director EverBank Global Markets. The father of the Daily Pfennig® newsletter, Chuck has a career in investment services and currencies spanning 35+ years. His tacit knowledge of the global markets along with his inventive spirit has led to the creation of many distinct and innovative currency-based products. A respected analyst of the currency market, Chuck has made frequent appearances on MarketWatch, USAToday, CNNfn, Bloomberg Television, and CNBC as well as quoted in The Wall Street Journal, US News & World Report, and The Chicago Tribune.